Investment industry needs to reach out to KiwiSaver members, win their trust: FMA

Wednesday 18th May 2016

The majority of New Zealand investors have confidence in the nation's financial markets but the least confident are KiwiSaver members who need to be encouraged to engage with providers and question whether they're in the right mix of funds, says Financial Markets Authority chief executive Rob Everett.

The FMA's Attitudes Towards New Zealand's Financial Markets survey showed overall confidence has dropped slightly this year, with a combined 56 percent of those polled saying they were confident or very confident, down from 60 percent in 2015 and 58 percent in 2014. Those that said they were not very confident or not confident at all rose to 29 percent from 27 percent, according to the survey of 1,000 people conducted by Colmar Brunton.

Everett said the decline this year could have been worse given the volatility in world markets, and suggests investors were reassured by the strength of the local stock market and relatively sturdy pace of economic growth in New Zealand.

The survey found KiwiSaver members were least likely to express confidence, with a combined 57 percent confident or very confident, compared with 80 percent of investors in managed funds or unit trusts. KiwiSaver members lagged behind residential property investors, with a confidence level of 71 percent, and those with term deposits, at 65 percent, the survey showed.

Everett said it wasn't surprising that KiwiSaver members lagged the field for confidence since many would have been "nudged" into schemes when the pension savings were first offered. "But we're now at the point where it is a key issue to get them engaged in these decisions - what fees they are getting charged, what funds they should be in," he said.

KiwiSaver represents the biggest proportion of New Zealand investors. While almost nine out of 10 people have an investment, 66 percent of those are in KiwiSaver, followed by 29 percent with term deposits, 16 percent in other pension plans and 14 percent invested in residential property (other than their own home). The most confident group, managed funds or unit trusts, accounted for only 11 percent of investors.

Everett said providers and financial advisers need to take the lead on getting KiwiSaver members engaged, which means winning their trust, having simple, easy-to-understand systems and being transparent. Issues to overcome included people feeling too intimidated to ask questions, a sense of "information asymmetry" in favour of the providers, lack of clarity about how advisers were getting paid and a lingering wariness of being "ripped off" , particularly among older investors.

"The real issue here is people have long memories - they remember the 1987 stock market crash, the finance company collapses," Everett said. "That's why so many are in term deposits. A lot of people are there because they are scared."

The survey suggests those people most engaged with their investments are the most confident about New Zealand's financial markets and have the most awareness of the regulatory environment and the FMA. They are more likely to be married or living with their partner, with a double income and no kids. They are most likely to have personal and household income of $100,000 or more.

The least confident are 18-29 years old, female, single, and with a household income of no more than $50,000. Just less than one in 10 people in 2016 said their confidence had increased, lower than in previous years while almost one quarter said their confidence had fallen. Males with a household income of at least $100,000 were most likely to say their confidence had increased while people aged 60 or older were most likely to say confidence had fallen, the survey showed.

Awareness of the FMA was little changed, with one in four of those polled having heard of the agency. Awareness was highest among males aged 50-59 living in Wellington with an income over $100,000 and lowest among 18-29-year-old females living in the North Island outside of Wellington or Auckland and with a personal income below $50,000.

Confidence in financial markets was higher among those who had heard of the FMA compared to those who hadn't, at 62 percent to 47 percent. And confidence that there was effective regulation followed a similar pattern at 61 percent to 51 percent.

BusinessDesk.co.nz

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